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Managerial Incentives and Favoritism in Promotion Decisions: Theory and Field Evidence

Author

Listed:
  • Berger, Johannes

    () (University of Cologne)

  • Herbertz, Claus

    () (University of Cologne)

  • Sliwka, Dirk

    () (University of Cologne)

Abstract

This paper investigates the effects of managerial incentives on favoritism in promotion decisions. First, we theoretically show that favoritism leads to a lower quality of promotion decisions and in turn lower efforts. But the effect can be mitigated by pay-for-performance incentives for managers who decide upon promotion. Second, we analyze matched employer-employee survey data with detailed firm level information on managerial incentive schemes and find that perceived promotion quality is indeed substantially higher when managers receive performance-related pay or participate in gain sharing plans.

Suggested Citation

  • Berger, Johannes & Herbertz, Claus & Sliwka, Dirk, 2011. "Managerial Incentives and Favoritism in Promotion Decisions: Theory and Field Evidence," IZA Discussion Papers 5543, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp5543
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    Cited by:

    1. Dey, Oindrila & Banerjee, Swapnendu, 2015. "Endogenous favouritism with status incentives: A model of optimum inefficiency," MPRA Paper 62828, University Library of Munich, Germany.
    2. Jan Tichem, 2013. "Leniency Bias in Long-Term Workplace Relationships," Tinbergen Institute Discussion Papers 13-196/VII, Tinbergen Institute.

    More about this item

    Keywords

    incentives; favoritism; nepotism; tournaments;

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

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